DA Silva and Others v CH Chemicals (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Scott JA, Farlam JA, Cameron JA, Cachalia JA and Leach AJA
• Judgment Date: 23 September 2008
• Citation: 2008 (6) SA 620 (SCA)
• Docket Number: 304/2007
• Counsel: MC Maritz SC for the first appellant.WH Trengove SC (with JF Roos SC) for the second and third appellants.BW Burman SC (with B Leech) for the respondent.
• Court: Supreme Court of Appeal

Scott JA:

F [1] The appellants were the defendants in an action instituted by the respondent in the Pretoria High Court for the disgorgement of profits, alternatively for the payment of damages arising from alleged breaches of the first appellant's fiduciary duties as the respondent's managing director, and, in the case of the second and third appellants, for damages G arising from their alleged unlawful competition with the respondent. The respondent's claims, as they ultimately unfolded following several amendments to its particulars of claim, were founded on a number of separate but closely related causes of action. Broadly stated, some related to the exploitation by the first appellant of two business opportunities H which it was alleged were corporate opportunities and should have been exploited for the respondent's benefit and others related to alleged conduct on the part of the first appellant while still the respondent's managing director which in other respects was aimed at furthering his own interests and those of the second and third appellants to the detriment of I the respondent. The court a quo (Seriti J) found for the respondent on all its claims but in terms of an agreement between the parties ordered that the issue of their quantification should stand over for later adjudication. The appeal is with the leave of the court a quo. For the sake of convenience I shall refer to the parties as in the court below.

[2] Before attempting to outline the claims in greater detail or to J consider the issues to which they give rise it is necessary first to

Scott JA

summarise, as briefly as the circumstances permit, the facts which form A the background to the dispute between the parties. They are largely common cause.

[3] The Dow group of companies is a large international group which distributes chemicals, plastics and various other related substances. It had a local branch in South Africa until it disinvested in 1987. Its B business was then purchased by the plaintiff company. The latter's shareholders were Mr Peter Columbine and Mr Dennis Hellmann who had both been local managers of Dow. Hellmann became the chairman of the plaintiff and Columbine its managing director. The plaintiff proceeded to serve as the local distributor of Dow products. The first C defendant, Mr Jose da Silva, joined the plaintiff in 1987 and in 1989 became its managing director. Columbine remained active in the business until 1997 when his share in the business was bought out by Hellmann.

[4] After the advent of democracy Dow re-entered the South African D market in 1995. It incorporated a South African subsidiary and opened an office in Johannesburg. Mr Joaquin Schoch, who had joined the Dow group in 1976, became its managing director. It was the policy of Dow to deal directly with its larger customers, ie those who purchased their products in large quantities, and to permit other distributors to serve E those customers whose purchases were in smaller quantities. In pursuance of this policy, Dow South Africa entered into a distribution contract with the plaintiff on 1 April 1995 which entitled the plaintiff to distribute a number of specified Dow products in South Africa. The contract was for a period of five years subject to extension of a further period of five years and thereafter indefinitely subject to one year's notice of termination. F In terms of clause 3 Dow was entitled to delete any of the listed products on six months' notice to the plaintiff.

[5] In 1996 the Du Pont group, which had its base in the USA and which was described as a giant in the chemical industry, entered into a joint G venture agreement with the Dow group for the marketing of thermo-plastic elastomers in the international market. They did so through a Swiss based company, Du Pont Dow Elastomers SA. I shall refer to it simply as DDE. On 1 April 1996 DDE entered into a distribution contract with the plaintiff in terms of which the plaintiff was to distribute a single DDE product called tyrin. The contract could be terminated on H 90 days' notice. DDE entered into a similar contract with another South African company, Chemserve, for the distribution of some four DDE products.

[6] Resinex NV, the European holding company of the second and third defendants, is in turn a member of a larger group of companies I ultimately controlled by Ravago SA. The latter is a substantial multi-national conglomerate based in Belgium. The main business of Resinex is the international distribution of chemical and plastic products. Dow's relationship with the Ravago group is of long standing and goes back to the late 1970s. By the end of 1996 Resinex was Dow's largest distributor J

Scott JA

A and distributed the latter's products in a number of countries. On 1 January 1998 Distriflex, a subsidiary of Resinex, entered into a distribution contract with DDE. In pursuance of this contract Resinex distributed DDE products in Eastern Europe, the Middle East and Africa with the exception of South Africa, Nigeria, Morocco, Tunisia and B Egypt.

[7] In the mid-1990s Resinex took a decision to enter the South African market. Its decision to do so was well known in the industry and was known to Hellmann and Columbine of the plaintiff. It was obvious that if Resinex were to enter the South African market it would do so in C competition with the plaintiff and would pose a significant threat to the latter's Dow and DDE business. Resinex was a multinational group that dwarfed the plaintiff and had extensive personal and business ties with Dow and DDE. When DDE was established it immediately embarked upon a policy of limiting the number of entities distributing its products. D This was common knowledge in the industry.

[8] Negotiations between Resinex and the plaintiff with a view to a joint venture or some other form of collaboration in South Africa commenced in 1996. Dow was aware of Resinex's intended expansion and it was Dow that instigated the talks. It would have been obvious that Dow E wished to avoid having to choose between Resinex and the plaintiff as its distributor in South Africa. The negotiations were initially conducted on the plaintiff's behalf by Columbine, its then managing director. I shall describe these negotiations in greater detail later in this judgment. It suffices at this stage to record that the negotiations culminated in an offer F being made by Resinex in February 1997. In essence it was that Resinex would immediately purchase 50% of plaintiff's Chemical Performance Products department and its plastics department and would acquire the remaining 50% over a period of five years, by which time it would have total control. The offer was rejected in April 1997. There was no G counter-offer.

[9] At about this time Columbine sold his shares to Hellmann and withdrew from the plaintiff company. Thereafter Da Silva assumed responsibility for the talks with Resinex. Various meetings were held and letters written. From the correspondence it would appear that the driving H force behind the attempt to establish some form of collaboration came from Da Silva. Although enthusiastic, his letters lacked what the managing director of Resinex, Mr Benoit De Keyser, described in evidence as 'specifics'. His letters were in most instances simply left unanswered.

I [10] Resinex had made it clear at an early stage that it would be coming to South Africa, whether with or without the plaintiff. In 1998 Resinex took the decision not to enter the South African market via an interest in the plaintiff's business or otherwise in collaboration with the plaintiff but to establish its own business in competition with the plaintiff. Just when that decision was taken and when it was conveyed to Da Silva was the J subject of some debate in this court. However, both De Keyser and Da

Scott JA

Silva testified that the decision was communicated to Da Silva for the A first time in December 1998 when De Keyser invited Da Silva to join Resinex and head up the business which Resinex had decided to establish in South Africa. Da Silva was reluctant to take a decision and stalled for time. According to De Keyser, Da Silva was still intent on achieving some form of collaboration between the plaintiff and Resinex. B

[11] In the following months De Keyser pressed Da Silva for an answer. Da Silva eventually agreed in principle in May 1999 and asked De Keyser to come to South Africa to discuss the details of the offer. De Keyser did so and an agreement was reached in the course of discussions from 8 to 10 June 1999. Da Silva wanted it in writing and De Keyser left C it to Da Silva to draft the contract. The latter did so, using a precedent. He gave it the heading: 'Heads of Agreement'. It was subsequently signed by both parties on 16 July 1999. I shall return to this document in due course. At this stage it is enough to say that it provided for the establishment of two South African subsidiaries of Resinex, a D holding company and a trading company. Da Silva would get a 25% interest in the holding company and would be the managing director of both. All of the Resinex (and Ravago) business would be done through these subsidiaries.

[12] On 11 June, being the day after the agreement was reached, Da E Silva told Hellmann about it. They discussed the date of Da Silva's departure. Initially they agreed that he would stay until the end of October 1999 but later agreed that he would leave at the end of August 1999.

[13] During his notice period Da Silva acquired two shelf companies F which became the second and third defendants. Their names were changed to Resinex Plastics (Pty) Ltd and Resinex Southern Africa (Pty) Ltd, respectively. Da Silva was appointed a director of both on 19 August 1999. He hired premises for them from 1 September 1999 on which date they commenced business. While still...